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Random Expected Utility and Certainty Equivalents: Mimicry of Probability Weighting Functions

Nathaniel Wilcox ()

Working Papers from Chapman University, Economic Science Institute

Abstract: For simple prospects routinely used for certainty equivalent elicitation, random expected utility preferences imply a conditional expectation function that can mimic deterministic rank dependent preferences. That is, a subject with random expected utility preferences can have expected certainty equivalents exactly like those predicted by rank dependent probability weighting functions of the inverse-s shape discussed by Quiggin (1982) and advocated by Tversky and Kahneman (1992), Prelec (1998) and other scholars. Certainty equivalents may not nonparametrically identify preferences: Their conditional expectation (and critically, their interpretation) depends on assumptions concerning the source of their variability.

Keywords: Certainty Equivalence; Identification; Preference Estimation; Preference Measurement; Random Preference; Choice Under Risk and Uncertainty (search for similar items in EconPapers)
JEL-codes: C81 C91 D81 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-gth and nep-upt
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https://www.chapman.edu/research/institutes-and-ce ... -CE-NWilcox-2017.pdf

Related works:
Journal Article: Random expected utility and certainty equivalents: mimicry of probability weighting functions (2017) Downloads
Working Paper: Random Expected Utility and Certainty Equivalents: Mimicry of Probability Weighting Functions (2016) Downloads
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